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It is rather like the Pope saying that he is not really into this Easter business and there is no point in going to church as it does not seem to get you into heaven anyway. But just before the long weekend, AIM listed VSA Resources (LSE:VSA) – which is actually an adviser to AIM companies – has said that it plans to delist from AIM as there is no point. Well you said it guys…
VSA’s exact statement was:
The perceived benefits of an AIM listing typically include access to equity capital markets, an enhanced corporate profile, a means to incentivise staff, and a mechanism to provide a market in the Company’s shares. The Board has reached the view that the Company is not receiving all these benefits.
The Directors believe that it would now be better for the Company to operate in the private arena as this could enable further capital to be raised more easily and enable the Company to succeed in its longer term objective of becoming a profitable business serving its corporate and institutional clients internationally. There are significant costs associated with maintaining the Company’s AIM quotation, including the annual fees payable to the London Stock Exchange, nominated adviser fees and other related professional costs. Cancellation of the Company’s AIM quotation will, accordingly, reduce its recurring administrative overheads. Furthermore, Cancellation will reduce the amount of management time required in connection with being a publicly quoted company.
Er… cripes. So AIM nomads and brokers charge a lot of money and it’s not really worth it. Er, yup, so says an AIM Nomad and broker. Ten out of ten for honesty.
But if a firm whose business is meant to be corporate broking, i.e. helping firms raise capital, get their share price up and which as an AIM adviser is meant to understand the rule book and how to make it easy to operate within it, blah, blah blah cannot achieve that for itself then what hope is there for the myriad of other smaller firms on AIM? Sweet FA.
Again 10 out of 10 for honesty to the folks at VSA. I would expect nothing else from its outspoken CEO Andrew Monk.
But does this not suggest that the whole AIM system is broken for smaller companies (i.e. sub £10 million market cap)? Yes I think it does. A £10 million market cap implies that a firm should at some stage be making c£1 million net income a year. But the costs of being on AIM (advisers, listing fees, IFRS accounting, management time etc) must be £300,000-£500,000 + per annum. That is a big cost for a small firm. And as Monk says, it is not worth it. Investors are not interested. And why should I invest in such a company when most of the money will end up going to advisers anyway?
There is, of course, a secondary point. VSA makes it clear that market conditions are awful. As far as I know most Nomad/broking forms are making sod all profit right now. They really cannot afford to lose even one retained client. But it is the Nomad on AIM that is responsible for regulating listed companies on AIM. So if a client is errant you have to be extraordinarily principled (like Daniel Fox Davies) to quit an account and forego a retainer. There are too many Nomads who feel pressured by sheer economic reality to turn a blind eye to misleading RNS statements and worse issued by their clients.
The whole system is failing. When will the LSE step up to the plate to make some changes?
Tom Winnifrith writes for 10 US and UK websites on shares, investment, small business, economics and politics. You can get alerts on all his articles by following him on twitter @tomwinnifrith or via his own blog www.TomWinnifrith.com
Tom is a keynote speaker (one of 25) at the UK’’s only serious one day investor show which takes place on April 13th in London. For more details go to www.UKinvestorshow.com
We await your solution with interest Tom
Personally feel spreadbetting should be banned on AIM stocks. Greed and short term traders have killed the market. Something has to be done ASAP. AIM is meant to provide a platform for small companies to grow not greedy gamblers shorting the hell out anything where there is no RNS due for another few weeks.